Interest rates on Treasury bills have fallen for six consecutive weeks as investors soften their demand for enhanced returns at the weekly auctions, amid an improved economic environment including low inflation.
Data from the Central Bank of Kenya (CBK) shows the interest rates on the shorter-dated securities --the 91-day, 182 day and 364-day papers-- have fallen since the start of August.
Interest rate on the 91-day paper fell further last week to 15.7677 percent from 15.7844 percent previously, while the return on the 182-day paper fell to 16.6255 percent from 16.6327 percent in the same period.
Returns on the 364-day paper meanwhile stand at 16.8228 percent from 16.8421 percent previously.
Analysts at the AIB-AXYs Africa stock brokerage state that the CBK has made active attempts to drive interest rates lower, as the conditions in the macro-economic environment improve.
“This is attributable to the CBK’s resolve to nudge interest rates lower amid an easing risk landscape,” the analysts stated in a research note.
Inflation has cooled significantly to fall below the government’s midpoint target of five percent though it increased slightly in August to 4.4 percent from 4.3 percent in July.
High inflation and a weak shilling had seen the CBK raise its benchmark rate successively, helping to reverse the negative macroeconomic trend by slowing down imports, attracting foreign investment in government debt and making it costlier to take loans for consumption or investment.
The Central Bank Rate (CBR), which had reached a high of Sh13 percent, was lowered to 12.75 percent last month as monetary authority's action paid off. Expected interest rate cuts in advanced economies including the United States are expected to provide the CBK with further impetus to ease domestic interest rates.
Other interest rates have also begun peaking with the average commercial bank lending rate for instance falling in July to 16.84 percent from 16.85 percent in August, the first drop in 21 months since October 2022.
The ease of interest rates, while reducing the return from different asset classes is expected to be a relief to borrowers who have been saddled with high debt service costs over the past year.
Falling loan costs are expected to support higher disbursements by commercial banks while helping reduce the accumulation of non-performing loans for the industry.
Private sector credit growth had slumped to just four percent in June, signaling the impact of high interest rates in softening the demand for loans and the tightening of disbursements by banks.
Externally, yields on Kenya’s Eurobond papers have declined to oscillate in the single-digit territory, another indicator in the stability of interest rates after upheaval in the last 12 months.
The August infrastructure bond (IFB) auction further signaled the gradual decline in interest rates as the return on the re-opened 6.5-year paper for instance, fell below the return on February’s 8.5 year IFB at 18.2989 percent compared to the latter’s 18.4607 percent.
